August 27 2013

elb2 Yes, it’s still August, at this pace if activity upticks in autumn, we’ll need more resources to publish every day!

LME has an experienced new CEO but has lost a significant depth in management – net net, a management backwardation. GJ’s first task: fill the hole left by Diarmuid O’Hegarty’s departure.

“BATS Edge” is go: allow the media to have another misguided flurry of mega-merger headlines despite the exchange world broadening and not contracting overall…

Bob Greifeld is under pressure, meaning we may have a Wall Street clean sweep of exchange CEO departures soon.

Meanwhile, Jignesh Shah looks closer to being toast than ever before and as always there’s a sting in the tail, so scroll on…

Public Markets

BATS To Merge With Direct Edge
Bloomberg

Bats Global Markets Inc. and Direct Edge Holdings LLC agreed to merge, uniting two of the biggest American exchange operators amid a four-year decline in volume.

The third- and fourth-largest equity market owners said the transaction will close in the first half of 2014. BATS CEO Joe Ratterman, will keep that role at the combined firm, while Direct Edge CEO William O’Brien will be president. Financial details weren’t disclosed.

Press release here.

PLY: In a world where HFT has peaked for now, this merger of the mega-discounters makes sense provided they can find a good model to exploit their position going forward. I am not yet clear how “BE” will retain all 4 platforms and maximize operational efficiency? Presumably more details will emerge on that one – indeed BATS has a great track record of providing cost-effective technology which is robust on most days (apart, alas, from IPOs).

The challenge for “BATS Edge” now is how to move beyond concentrated secondary stock discounting to create a tangible model for expansion. The BATS options exchange is one avenue but without CCP is less investor sexy. However, given the proven ability to take market share and compete, clearly with some blue sky thinking there can be a great business in here. Admittedly, listings seem to remain the prerogative of the legacy country clubs (now 1 & 3 in US secondary market share) but in a world of opportunity “BE” can, with a little inspiration, surely prosper.

Finally, bear in mind one interesting shareholder point: Deutsche Boerse (via the recurring foresight of ISE) now own as much as 15.75% of the second largest stock market group in the USA…

HKEx Names Former LIFFE Exec As LME CEO
Reuters

Garry Jones has been confirmed as LME CEO and member of LME board and will begin on September 30.

In a regulatory filing, HKEx said Diarmuid O’Hegarty, LME’s deputy chief executive, told the exchange that he will resign from his duties after serving a six-month notice period.

Press release here.

PLY: A really bittersweet announcement this one. In losing Diarmuid O’Hegarty the HKEx management have sacrificed a core strength of the business and also lost an ideal candidate to be CEO. At the same time, our sources (hat-tip!) had long said Jones was in pole position, even when an offer was reportedly made to the perceived outsider candidate Martin Pratt last week.

Eurex Halts Trading On Technical Glitch
Bloomberg

A technical glitch halted trading on Eurex, for about 60 minutes.

Nasdaq Trading Halt Exposes Communication Gaps When Crisis Hits
Reuters

The NASDAQ trading halt last week has raised questions about the exchange’s communications effort and whether procedures need to be established to keep the investing public informed when mishaps occur.

Nasdaq, NYSE At Odds On Outage Cause As SEC Seeks Facts
Reuters

U.S. regulators have asked Nasdaq and NYX to produce a timeline of Thursday’s three-hour trading disruption but the rival exchange operators have been unable to agree on the details.

The inability of the two largest U.S. stock markets to come to a common understanding on what caused one of the worst market disruptions in recent memory underscores the complexity of the highly fragmented market and the difficulty of preventing future glitches. It could further damage investor confidence in markets, which have been roiled by a succession of high-profile technical glitches in recent years.

PLY: Some might regard this as obfuscation on the part of one side or the other. Some might even argue that NASDAQ or NYSE do not themselves know what happened. Certainly, it might be the market structure is highly complex, or just plainly badly architected. If it’s the latter, will the SEC listen?

Nasdaq Needs A Technology Upgrade
Bloomberg

Does Nasdaq have its priorities straight? The SEC is right to worry that it doesn’t — that the market is favoring lucrative high-speed trading customers at the expense of Uncle Jack in front of his computer at home in his slippers.

Tullett Prebon Announces Filing Of SEF Application With CFTC

Tullett Prebon has filed a SEF application with the CFTC for tpSEF Inc headquartered in New Jersey.

Shawn Bernardo, Tullett Prebon’s Senior Managing Director of e-broking and member of TP’s NA Exec Committee & Chairman of the Wholesale Markets Brokers’ Association (WMBA), will be tpSEF CEO.

CFTC Permanently Bars Accountant, Jeannie Veraja-Snelling, For Failing To Properly Audit Peregrine Financial Group, Inc.
cftc.gov

CFTC have barred Jeannie Veraja-Snelling, d/b/a Veraja-Snelling & Company (Veraja-Snelling), a certified sole practitioner public accountant from Glendale Heights, Illinois, from practicing before the Commission.

PLY: Mrs Veraja-Snelling appears to have been utterly out of her depth when trying to audit the scheming scumbag Russ Wassendorf who is rightly serving a sufficiently long jail term that he is unlikely to trouble the outside world again. Note that here the law of quality audit is key in DD. Sole trader/small auditor shops in sheds or modest suburbs are the preserve of the Madoffs and Wassendorfs, not credible markets (obscure exchanges please take note!).

Nasdaq No Longer Second-Biggest U.S. Stock Exchange
InvestorPlace

It sure sucks to be Nasdaq OMX these days.

Goldman Losses From Options Glitch In Tens Of Millions
Livemint

Goldman Sachs lost tens of millions of dollars after a computer glitch led to a flood of erroneous options trades last week.

Roughly 80% of the erroneous option-market contracts traded on NYSE Euronext’s two option platforms NYSE Arca Options and NYSE Amex options were cancelled.

PLY: No schadenfreude for Goldmans but the fact they will not make good on all their losses is a moment of shame for Wall Street bankers and a black mark on exchanges which allow them to get away with perverting the market. That NYSE have been so keen to aid and abet this process sadly demonstrates once again the chronic inability of NYX to cope with the modern marketplace.

Private Markets

Nepal SE Mulls Full Automation System
The Himalayan Times

Nepal Stock Exchange (Nepse) is moving forward with the plan to introduce online trading system and new investment instruments.

PLY: NEPSE is also on the path to privatisation, having been operating an electronic market satisfactorily on COMDAQ software since 2007. Logic suggests they will stick with the internationally proven COMDAQ which has already provided the required automation upgrade elsewhere.

Special Section: FTI, NSEL, India at the Crossroads

PLY: ‘A big fat festering disaster’ is perhaps the best way to describe the NSEL fiasco where a derisory half a million dollars has been gathered for payment number two making it 26 million short this week alone! That is in addition to being 12.5 million USD short in tranche one last week. Sadly it appears Jignesh Shah has now completely lost control of the situation and the buffers are fast approaching for what was once the FTI express…

This is a rotten situation, as clearly:

1) Many have not got the money to settle their trades;
2) Many have misled on stocks of commodities in warehouse;
3) NSEL has not appeared capable of managing the situation. Surely they must have been aware that commodities were missing to the magnitude of hundreds of tonnes of product?

The repercussions are going to be vast and the future of India’s markets is arguably at stake here. Swift action is now needed to clean up NSEL while regulators are rightly banning defaulting counterparties with immediate effect. This is going to take a long time to unwind and the key going forward will be to maintain orderly markets while clearly plugging the holes which were evident in India’s ‘dog’s dinner’ of a regulatory system. That is not to point the finger entirely at the public sector. Every commercial segment of the agri sector seems to have culpable parties involved in the NSEL crisis which is now a melt-down. Markets need to be rebuilt and confidence return. Iron fist prescriptive regulation will not achieve this. Moreover, culpable counterparties and officials must be sanctioned. Once the payments have been effected as best possible, expect criminal charges to follow.

In share news, FTI is falling: down over 5% while MCX is clearly in play, limit up once again. Kotak’s interest has been publicly denied while it seems NSE have essentially dumped their 2.45%. Of course NYSE are a seller along with, sooner or later it seems increasingly certain, FTI’s own stake.

How much will be repaid? Too difficult to call although large creditor NK Proteins claims it will sell property to make up its deficit – that clearly will take some time, perhaps longer than even the 7 month repayment schedule currently in its second week of default…

NSEL Crisis: Bourse Gets Only Rs. 3.40 Crore For Second Payout
ndtv.com
NSEL Faces Another Payout Default
The Economic Times

NSEL could only gather Rs.3.40 crore (USD 517.5 k) from its members and clients on Monday against the second scheduled payout of Rs. 174.72 crore (USD 26.59 mln) due on 27 August.

Of 24 members, 11 members have paid a total of Rs. 11.90 crore (USD 1.81 mln) (so far (Rs. 40 lakh – USD 60.8 k – was paid on August 21, Rs. 8.10 crore – USD 1.23 mln – on August 23 and Rs. 3.40 crore – USD 517.5 k – on August 26).

Pressure is mounting on Jignesh Shah and Financial Technologies.

Promoters May Be Declared Unfit To Run NSEL
Business Standard

In a meeting Monday with NSEL Investors Forum, FMC Chairman Ramesh Abhishek said the regulator was seriously considering declaring the promoters of NSEL not fit and proper to operate exchanges.

In another development, the institutional investors in MCX are meeting the FMC on Tuesday. This is to seek clarity on the implications of FMC’s threat to NSEL board members last week, after it failed to meet the first week’s committed payout.

PLY: Those associated with FTI are likely doomed now. The Indian establishment has long felt uneasy about Jignesh Shah and his close associates. Now armed with plenty of ammunition to disbar them, there is an air of inevitability that the FTI empire will be forcibly disassembled.

That said, MCX and other viable FTI ventures, need to be restructured rapidly at the top with a board which encourages local and international confidence in the Indian commodity markets. Speaking of which, the NSEL board is essentially non-existent:

NSEL & MCX Set To Reconstitute Boards
Business Standard

After a month-long spate of resignations, only two NSEL board members remain: Vice-Chairman Jignesh Shah and his close collaborator Joseph Massey, MD of MCX-SX.

PLY: & an “unfit” ruling will push Shah off the board and confirm MCX is in play…

Govt-Appointed Panel To Submit Report On NSEL Issue By Sept 7
The Hindu Business Line

Finance Minister P. Chidambaram has announced that action will be taken concerning NSEL on the basis of the recommendations by two committees, one headed by the Director of Enforcement Directorate, the other by a senior Finance Ministry official.

Ex-Board Members Blame ‘Bad People’ In Management Team For NSEL Crisis
Financial Express

Former NSEL chairman Shankarlal Guru on Monday sought action against “some bad people” in the bourse’s management and said he resigned from the board on August 7 after the settlement crisis panned out. BD Pawar, another NSEL director who quit recently, also blamed some executives in the management team for the crisis.

MCX-SX Up For Renewal As NSEL Crisis Worsens
Financial Express

NSEL associate company MCX-SX’s equity trading licence could be in jeopardy when it comes up for renewal next month.

Both NSEL and MCX-SX are promoted by Financial Technologies. While Jignesh Shah, chairman and group CEO, FT, holds 18.8% in the company in his personal capacity, La Fin Financial Services has a 26.76% stake. As of June 30, FT and MCX — classified as the promoter group — held 71.84% of the diluted share capital of MCX-SX. This includes underlying shares assuming the full conversion of warrants and convertible securities.

PLY: Remember Jignesh Shah fought an acrimonious, litigious and often highly personal campaign to obtain his stock exchange licence. Simply closing MCX-SE is counterproductive to market structure, India’s image and indeed creditor/shareholder value. will SEBI make him sell? Frankly I would not be remotely surprised: if nothing else it may help pay down the NSEL shortfall.

The Greenspan Of NSEL Crisis?
Business Standard

On a list of the people under watch over the NSEL collapse, one could not leave out B C Khatua, chairman of the FMC between 2007 and 2011, when the bourse was born and grew fast.

The 1976-batch IAS officer was working as Sales Tax Commissioner in Maharashtra, the home state of the then minister for consumer affairs, when his appointment became public in May 2007.

Within weeks, on June 5, 2007, the gazette notification to exempt NSEL one-day forward contracts from the ambit of the Forward Contracts (Regulation) Act, 1952, which governs FMC, was published.

Khatua probably did not have much say in that. But was the notification a licence to turn a blind eye? In the words of Paul Joseph, the ministry official who signed that gazette notification and later went on to work with MCX-SX, the understanding was that FMC would look into matters if and when there were violations.

In his four years at the helm, did Khatua not have a shadow of a doubt? Did he not know that the greatest campaigners against “dabba trading” were its chief practitioners? To say he was unaware would be a great injustice to the man’s deep knowledge and clear understanding of the market he regulated.

NSEL Scam: Why Caged Parrot SFIO May Not Dig Deep Enough
Firstpost

The NSEL settlement crisis has snowballed into a scam with alarming proportions and as events unfold, skeletons are likely to tumble out of the closets of a few high and mighty.

PLY: The headline of the crisis to date, with the article outlining how patronage and influence may preclude a genuine clearing of grievances and just settlement for all.

Stage Set For Shifting FMC To FinMin
Financial Express

The Consumer Affairs Ministry has conveyed its consent to the Prime Minister’s Office to shift the commodity futures market regulator from its ambit.

PLY A single regulatory body makes sense in many ways but SEBI needs to really improve its game to be a genuinely integrated and efficient operation which helps steward markets and lets them grow.

NBHC Says Its Warehousing Exposure In NSEL Less Than 3 pc
The Economic Times

The National Bulk Handling Corporation Ltd (NBHC) today sought to allay concerns of users of its services, saying its exposure in NSEL warehouses is less than 3 per cent.

Products

NYSE Plans To Review Price Curbs For Lightly Traded Securities
Bloomberg

NYX plans to reevaluate a program aimed at curbing sudden price swings after about 40 thinly traded securities set off trading halts last week because they had a wide bid-ask spread.

HKEx Welcomes First CESC Index ETF

The ChinaAMC CES China A80 Index Exchange Traded Fund (ETF) is the first ETF on an index from China Exchanges Services Company Limited (CESC), HKEx’s joint venture with the Shanghai and Shenzhen stock exchanges.

Career Paths

Greenwich Associates has hired Kevin McPartland as Principal to lead a new market structure and technology advisory service. The depth of Greenwich Associates data coupled with their comprehensive insight will generate more accurate research and recommendations, ultimately providing greater comfort to senior executives making important business decisions.

Press release here.

PLY: Congratulations and all the best to Kevin in this exciting new role which adds value to Greenwich’s service offering.

tp SEF, the Tullett Prebon platform seeking CFTC regulation has announced its board:

As mentioned above, Shawn Bernardo, Tullett Prebon’s Senior Managing Director of e-broking and member of TP’s NA Exec Committee & Chairman of the Wholesale Markets Brokers’ Association (WMBA), will be tpSEF CEO while the board will consist of Public Directors, David Clark, John Spencer, and James Quaille, and Directors, John Abularrage and Christian Pezeu.

Finally, if you scrolled too fast, you missed the confirmation of Garry Jones as LME CEO, beating out the highly qualified Diarmuid O’Hegarty. While Jones is now off the roster of highly employable C-suite executives, Diarmuid joins it and brings a wealth of experience to management and regulatory matters – with his pivotal role in EU commodity discussions of late surely it will only be a matter of weeks before he is snapped up by another business keen to capitalise on his unique skills set.

Sobolewski Is Most Adequate To Implement Polish Model At BVB
actmedia.eu

PLY: Chairman of the BVB Lucian Anghel trumpets the arrival of new MD Ludwik Sobolewski given his pedigree leading Warsaw’s GPW. That said Warsaw was headed in the right direction when Ludwik took over from founder Wieslaw Rozlucki. The Romanian capital marketplace is, by comparison, pretty dysfunctional.

Changes in investors/shareholders

NSE Sells Over 2 % Stake In MCX
Business Today

NSE has sold a more than 2 per cent stake in the Multi Commodity Exchange (MCX) in small tranches in recent weeks, even as speculation is rife about a potential buyout of the country’s largest commodity bourse by a rival entity or private investors.

NSE held 1,25 mln shares, or 2.45 per cent in the commodity exchange as on June 30, 2012. NSE is believed to have sold more than 1.2 mln shares and is left with only a few thousand shares.

Financial Calendar

Tomorrow:

Ex-dividend date for $0.18 CBOE Q2 dividend

All forthcoming exchange / investment related events are now listed in our Events page.

Share Notes

Following his sale of 2,000 shares Tuesday, August 6th at an average price of $16.64, (bargain $33,280.00) reported on August 12th, the sale of 2,000 shares at an average price of $16.78 (bargain: $33,560.00) reported on August 13th, the sale of 2,000 shares Monday, August 12th at an average price of $17.02, (bargain $34,040.00) reported on August 16th, the sale of 2,000 shares Friday, August 16th at an average price of $17.16 (bargain $34,320.00) reported on August 21 and the sale of 2,000 shares Tuesday, August 20th at an average price of $17.15 (bargain $34,300.00) reported on August 23, Interactive Brokers SVP Milan Galik sold another 2,000 shares Thursday, August 22nd at an average price of $17.10, (bargain $34,200.00) He now owns 812,604 shares.

Analyst Notes

Nasdaq OMX: Flash Crash Part 2 Or 83% Profit?
istockanalyst.com

…If I didn’t know better I’d think these exchanges are a terrible place for investors. But the financial exchanges happen to be one of my favorite groups of companies.

CME: Are Hedge Funds Right About This Stock?
Insider Monkey

At the end of the second quarter, a total of 40 of the hedge funds we track were long in this stock, a change of 33% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully.

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

All Analysts, Banks and Brokers are welcome to contribute to this section.

Crowdfunding

Kickstarter Will launch In Australia And New Zealand In “The Very Near Future”
computerandvideogames.com

Kickstarter will launch in Australia and New Zealand in “the very near future” with launch events dubbed ‘Kickstarter School’, scheduled in Sydney and Melbourne on September 1 and 2 respectively.

Other stories

Nasdaq OMX Needs To Make Changes: Greifeld May Be The First (subscription)
seekingalpha.com

PLY: I remain resolutely impressed by the ability of Bob Greifeld, somebody who seems to champion the hyper-average, to remain CEO of NASDAQ. Perhaps this time things have gone a glitch too far. Certainly NASDAQ needs inspiration and the rabidly cost focussed quarter on quarter ‘management’ approach has long since exceeded its sell-by date.That said, Greifeld’s recent deals in IR materials and eSpeed have been developments with potential.

A core failing of the Greifeld era has been the inability to balance the need to service the market and also provide shareholder value. The fact that there is still a debate about ‘for profit’ exchanges demonstrates not merely the reactionary nature of that dinosaur, the traditional Wall Street stockbroker but also the inability of NASDAQ to really show leadership in the industry. Not that NYSE are much better, it must be added.

Having always defined himself against the NYSE leadership with whom he is apparently equally keen never to be seen in the same room, Bob Greifeld now finds himself in a fascinating race with Duncan Niederauer – which one will leave office first?

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